What Happens If You Just Don’t Buy Homeowners Insurance?

Can you go without homeowners insurance? What happens if you don’t have homeowners insurance?

Let’s find out.

As Prices Rise, Millions of Americans Are Dropping Insurance Coverage

According to a new report by MarketWatch, millions of Americans are choosing to go without health insurance, home insurance, and other important coverages.

MarketWatch found 25.8 million Americans currently lack health insurance. According to the Congressional Budget Office, this number could increase by another 10 million by 2034, reversing gains made under the Affordable Care Act.

High prices in the homeowners insurance marketplace, meanwhile, are also forcing others to drop coverage. In 2021, roughly $1.6 trillion worth of homes across the United States were uninsured. As premiums continue to rise, this number is expected to increase.

The average homeowner in the United States pays around $3,300 per year for homeowners insurance. Over the last five years, homeowners insurance rates have risen in 95% of ZIP codes across the United States.

Can I Drop Homeowners Insurance Coverage?

Homeowners insurance isn’t legally required in the United States.

However, skipping homeowners insurance is one of the riskiest financial decisions you’ll ever make.

And, if you don’t fully own your home, your lender typically requires you to carry homeowners insurance coverage. In other words, people with a mortgage can’t simply cancel homeowners insurance coverage.

Here’s how it works:

• Do you own your home outright? If you own your home outright and don’t have a mortgage, then you can add or drop homeowners insurance coverage based on your personal risk tolerance. You’re not legally required to carry homeowners insurance on your home.
• Do you have a mortgage? If you have a mortgage, then you’re not the full owner of your home, and you’re not typically able to drop homeowners insurance. If you do drop coverage, you’re violating the terms of your mortgage.

What Happens If I Drop Homeowners Insurance?

Whether you have a mortgage or not, there are consequences for dropping homeowners insurance:

• If you don’t have a mortgage and you own your home outright, then you’ll face no legal consequences from dropping homeowners insurance, nor will you face pushback from any lender. You will, however, face increased risk. If someone injures themselves on your property or if your home is damaged in a storm, then you’ll cover these costs out of pocket.
• If you do have a mortgage and drop homeowners insurance, then things get more serious. Virtually every lender (i.e. mortgage provider) in the United States requires you to carry active homeowners insurance coverage. If you drop coverage, your lender will “force-place” insurance on your home, which means they buy temporary coverage for you until you can prove you purchased coverage yourself. This insurance is more expensive and covers less. If you continue to avoid buying coverage, then it may be considered defaulting on your loan, and it could lead to foreclosure. Having insurance is a condition of the mortgage.

Pros & Cons of Dropping Homeowners Insurance Coverage

Dropping homeowners insurance coverage is generally not a good idea. Instead, most experts recommend shopping around, adjusting coverage, increasing premiums, and taking other action to make things work.

However, you’re legally allowed to drop homeowners insurance coverage if you own your home outright.

Here are some of the pros and cons of dropping homeowners insurance coverage:

Pros

Dropping homeowners insurance coverage has its advantages, including:

1. Avoid Rising Premiums: Homeowners insurance premiums have risen in 95% of ZIP codes in the United States over the last five years. Homeowners in some states pay more than $6,000 per year, on average, for coverage. Some homeowners pay double the premiums they paid a few years ago. If you drop coverage, you’re jumping off the ladder and avoiding rising premiums.
2. Save Money on Premiums & Deductibles: What could you do with an extra $200 to $500 per month? If you drop homeowners insurance, you’re saving money on premiums. Plus, if you face a loss, you don’t need to pay your insurer a deductible for the privilege of making a claim .
3. Potential to Self-Insure: Dropping homeowners insurance doesn’t mean going without insurance. Instead, some homeowners choose to self-insure. Instead of paying $3,300 to your insurer every year, for example, you might deposit $3,300 into a savings account. If you need to make a claim, you withdraw money from that account. If you never make a claim, you’ve saved thousands and maybe even earned money.
4. May Be Only Option in Some Areas: If you live in a high-risk area, then you may not be able to buy insurance or get a mortgage. Homeowners in volcanically active regions of the Big Island of Hawaii, for example, may be unable to buy insurance or get a mortgage through the ordinary marketplace, forcing them to buy homes with cash and self-insure property.
5. No Insurance Paperwork, Claim Headaches, or Documentation: Insurance doesn’t always work smoothly. Insurers often force you to complete mountains of paperwork to prove the loss. They could deny your claim or reduce payout. It might take months or even years to resolve a complex claim. If you drop insurance, you never need to deal with paperwork, claim headaches, documentation requirements, or terms like “concurrent causation.”

Cons

The biggest disadvantage of dropping homeowners insurance is that you’re 100% financially responsible for all damage. If someone injures themselves on your property, or if a fire destroys your home, then you’re out of luck; you’re paying these costs out of pocket.

Some of the disadvantages of dropping homeowners insurance coverage include:

1. Significantly Higher Liability Risk: Homeowners insurance doesn’t just cover your property and dwelling. It also covers liability. If someone walks onto your property and injures themselves, for example, then you may be liable for their medical bills and other expenses. Insurance would cover this cost. Without insurance, you’re paying out of pocket.
2. Risk of Losing Full Value of Your Home After Unexpected Event: Without insurance, a single storm could wipe out your home and its full value. For many people, their home is their biggest investment. Are you willing to risk that investment to save a few thousand dollars per year?
3. Potential Violation of Mortgage Terms, Default, & Foreclosure (If You Have a Mortgage): If you have a mortgage, then you can’t really drop homeowners insurance coverage. Virtually every mortgage requires you to carry active homeowners insurance coverage that meets certain requirements. If you drop this coverage, your lender could force-place insurance on your property (with higher premiums and lower coverage) until you purchase coverage again. If you fail to purchase coverage again, it could be considered defaulting on your loan, which could lead to foreclosure.
4. No Additional Living Expense Coverage: Homeowners insurance compensates you for damage, but it also covers additional costs associated with a loss – like the cost of hotels and meals after a disaster destroys your home. These are considered additional living expenses (ALE) and can add thousands to a claim.
5. No Support After a Disaster: Insurance companies provide valuable support after a disaster. They can recommend contractors, organize cleanup, handle all legal and financial fallout, and organize other parts of the recovery process. Without insurance, you’re on your own.
6. High Repair & Replacement Costs: Insurers aren’t just raising prices because they’re greedy. They’re raising prices because everything is becoming more expensive. Lumber is more expensive. Appliances are more expensive. Furniture is more expensive. Whether you have insurance or not, these higher repair and replacement costs are unavoidable.
7. Potential Difficulty Selling Your Home: Sometimes, dropping homeowners insurance could make it difficult to sell your home in the future. Sellers could see it as a red flag. Some homeowners drop coverage after too many losses in a short period, for example. It could suggest you’re hiding damage from prospective homebuyers.

So Should You Drop Homeowners Insurance Coverage?

While homeowners insurance may not be legally mandatory, it’s one of the smartest financial protections you can have.

For most people, a home is their largest investment – and losing it to fire, storm, or theft without insurance could be devastating.

Whether you’re fully insured, underinsured, or uninsured, a public adjuster can help you review your options. Contact ClaimsMate today for a no-obligation phone consultation with a licensed public adjuster to help you navigate any insurance situation.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.